Reverse Logistics in Pharmaceutical Industry

Reverse Logistics in Pharmaceutical Industry of Pakistan using the Multiple

Integer Linear Programming

Asif Rafique Bhatti

1200405-1003

PhD Scholar

School of Business and Economics

University of Management and Technology, Lahore

February 26, 2013

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 Reverse Logistics in Pharmaceutical Industry

Abstract

In this paper Reverse logistics in Pharmaceutical industry of Pakistan has been

modeled using the mixed integer linear programming. Considering the time horizon,

multiple products, multiple distribution returns and multiple collection centers. The

idea is to come up with solution to minimize the cost of overall returns in the domain

of what if organization open collection center or not considering the need

periodically. However scope is limited only for the returns which are shipped due to

breakage / Expire. We have not taken returns which are due to wrong dispatch /

excess or shortages returns due to wrong packages etc.

Keywords: Reverse logistics (RL), Reverse supply chain (RSC), Product

Distributors (PD), Forward Logistics (FW)

Introduction

Pakistan is one of those regions where the Pharma industry is now become a

major contributor in national growth. Earlier Pakistan has very few Pharma

manufacturing industries, at the time of establishment 1947. Now it is worth

mentioning that currently around 400 national and Multinational market players are

working in Pharma sector of Pakistan. The value of product sold in year 2007 was

US$1.4bn and value of product sold in year 2012 was recorded up to US$2.3 bn.

Now Pakistan is developing Pharmaceutical market in Asia with large population and

economic progress. Pakistan Pharma sector is relatively young in international drug

market with exports over US$100 million in year 2007 and the industry export vision

is US$500 million by 2013 (PPMA 2012). Current growth rate 19-20% and market

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 Reverse Logistics in Pharmaceutical Industry

Size around 2 billion US Dollar. Pakistani Pharma Industry in the frame of global

rank in term of Volume wise ranked at 10th and in term of value wise industry marked

at 50th number. Pakistani Pharma industry employed approx ½ million people directly

or indirectly.

In current scenario where the regulatory concern and economical factors

making the competition more stiff, the drug manufacturers are focusing on the

excellence in operations to excel in quality and efficiency.

Supply Chain Management

Supply Chain Management offers supports and integration in multiple

domains of business. In supply chain management the return part appears in customer

services. For example SCM defined supply chain as, it consists of all parties involve,

directly or indirectly, in fulfilling the customer request. The supply chain includes not

only the manufacturer and suppliers but also transporters, warehouse, retailers and

even customer themselves (Chopra, 2009). On the other hand council of supply chain

Management defines the supply chain as “Supply chain management encompasses the

planning and management of all activities involved in sourcing and procurement,

conversion, and all logistics management activities. Importantly, it also includes

coordination and collaboration with channel partners, which can be suppliers,

intermediaries, third party service providers, and customers. In essence, supply chain

management integrates supply and demand management within and across

companies” (CSCMP, 2013).

It can be infrared that the reverse logistics part is not mentioned in these

definitions but it is implied that the focal firm has to answer all the request of the

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 Reverse Logistics in Pharmaceutical Industry

customers using any of the tool available under the umbrella of supply chain

Management.

As logistics in supply chain Management as CSCMP’s Definition of Logistics

Management

“Logistics management is that part of supply chain management that plans,

implements, and controls the efficient, effective forward and reverses flow and

storage of goods, services and related information between the point of origin and the

point of consumption in order to meet customers' requirements.”(CSCMP, 2013).

In the context of Pakistani Pharmaceutical industry the forward logistics is

truly the value added service from the manufacturer to support the customer by

optimization of the customer services and cost associated with this operation.

Reverse Logistics

Reverse logistic is the backward flow of product from customer to the point of

origin, in reverse logistic the flow is from “Many to One”. On the other hand forward

flow of logistics the product is distributed to different channels from one source “One

to many.”

According to the American Reverse Logistics Executive Council, Reverse

Logistics is defined as, “The process of planning, implementing, and controlling the

efficient, cost effective flow of raw materials, in-process inventory, finished goods

and related information from the point of consumption to the point of origin for the

purpose of recapturing value or proper disposal.”

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 Reverse Logistics in Pharmaceutical Industry

Reverse Logistics in Supply Chain Management Figure 01

Source: Samir and Rajiv 2006: 36.

Reverse Supply chain Management defines as “the Managing the series of the

activities which require to retrieve the product from the customer to dispose the

product or recover value.”

In nutshell RSCM is emerging concept in context of the Pakistan as there are

no specialized services available in this domain. Legalization and environmental

concerns are now forcing the manufacturers to manage this reverse flow. Reverse

logistics in corporate world is objective by the collection of end of life product,

damage product or wastage by meeting the business social responsibility with

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 Reverse Logistics in Pharmaceutical Industry

minimum input of the cost. The importance of studying the RSCN has increased for

several reasons for instance

 The amount of sold unit return is high and that can hit hard to future sales

 To maintain the social image of the corporate sector in the eye of the

customers

 To stream line the Product Distributors (PD) concerns on revenue loss in case

of end of Life (EOL) / Damage / defected products

 To meet the standers of the Legalization

 To generate the value if possible

Reverse Logistics and Pharmaceutical industry of Pakistan

RL in the Pharmaceutical industry is as important as the forward logistics. Its

importance is not only for the sake of economical factors but also from the point of

view of the regularity and environmental concerns. In one of the leading economies

like in America the total Pharmaceutical return is 2.5 billion dollars and an estimated

reverse flow of goods worth about 5 million dollars. Some of the common reasons

which cause to return of Pharmaceutical products are:

 Near expiry or expired

 Damage / Breakage ( Glass Bottles of Syrups )

 Wrong Batch dispatch

 Product Recalls

 Regulatory concerns if any

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 Reverse Logistics in Pharmaceutical Industry

In Pakistani Domain it takes important considerations for the industry when it

comes to reverse logistics are the security of the returned goods and cost parameters

of the RSCM, It become important to answer the questions that :

 What they should consider in RSCM Product wise?

 Why it is important to go far RSCM?

 Who will responsible for it?

 What should be the rout (Location) for collection?

 How much cost would incur on it?

The nature of return in Pharmaceutical industry is bit different to the return of

the other industry. For instant in plastic or soft drink manufacturing industry when the

product is return it will move towards the remanufacturing / refilling or disposal.

While on other hand in Pharmaceutical industry when product is return from the

Product Distributors (PD) these products need to be destroyed and disposed properly.

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 Reverse Logistics in Pharmaceutical Industry

Fig 02 Reverse logistics Pharmaceutical Industry

Current position of RSCM in Pakistan:

Currently in Pakistan there are few names who are taken reverse logistics as

business , and earning a handsome profit by using the waste or other industrial

returns of different kind by adding the value .but overall the situation not satisfactory

regarding the industries intention and focus on reverse logistics. In Frame work of

Reverse logistics (Ijaz Yousuf, 2012) has mention the road blocks of RL specifically

in Pakistani Industry

 Lack of awareness about reverse logistics

 Lack of technical expertise to manage the Returns

 Management Intentions ( strategic focus )

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 Reverse Logistics in Pharmaceutical Industry

 Financial constrains

 Information sharing issues

 Lack of Infrastructure

 Environmental and Legal Issues

However with situation like this in case of Pakistani Industrial frame, there is

still a room to establish a sense for taking the RL at strategic level by figuring out its

importance.

Objective of the paper

This paper is an effort to investigate the Reverse supply chain for a

Pharmaceutical organization using the mixed integer linear programming where the

organization is planning to incubate the Reverse logistics network by opening

collection centers, processing center, deploy human resource and other parameters to

manage the returns either to dispose it or distraction and relevant with the objective is

to minimize cost of overall Return supply chain.

Previous Work in RSCM using the MI Linear Programming

In different research paper the researcher has highlighted the complex and

uncertain nature of the RL. According to literature the one of the important

characteristics of RL is the uncertainty that ultimately oscillate the RL systems in

different parameters of RSCM. (Roghanian & Mostafa, 2012) Hosseinzadeh presented

work on reverse logistics using the mixed integer linear programming with the addition

of the genetic Algorithm with the system base assumption for the multiple products,

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 Reverse Logistics in Pharmaceutical Industry

multiple collection points, multiple processing centers and transportation strategy that will

satisfies demand imposed by manufacturing centers and recycling centers with minimum

fixed opening cost and total shipping cost. Then, they propose priority based genetic

algorithm to find reverse logistics network to satisfy the demand imposed by manufacturing

centers and recycling centers with minimum total cost under uncertainty condition. Finally,

authors have applied the proposed model to a numerical example. This was intentioned to

facilitate which processing, collection, manufacturing center has to open or not. Ko and

Evans presented a mixed integer nonlinear programming model for the design of a dynamic

integrated distribution network to account for the integrated aspect of optimizing the forward

and return network simultaneously.

In same domain Jayaraman (1999) has presented a closed loop logistics model

using the Mixed Integer Programming in which the decision regarding the shipment,

remanufacturing. Location of stores or establishing the facilities are taken in to

account. The model that was presented by the Jayaraman was in the form of 0 or 1

integer programming. The objective was to minimize overall cost of close loop

supply chain which includes the product returns, transportation cost, and facility

opening cost. Other modeling techniques have been incorporated in reverse logistic

for instance; Fleischmann (2001) has modeled the reverse logistics Network design

by considering the impact of Product returns on logistics networks.

Min (2006) has contributed in the reverse logistics by introducing mixed-

integer, nonlinear programming model and a genetic algorithm for its solution.

Numerous studies have been found which shows the research on the reverse logistic

network design and route problems, researchers has used the transportation model to

describe the possible results in the frame of MI programming.

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 Reverse Logistics in Pharmaceutical Industry

Hypothetical Case Study

To develop a model we have assumed a Pharmaceutical organization who is

interested to introduce a reverse supply chain Management (RSCM). The company has over

an X billion US Dollar Business in Pakistan and has wide range of Product distributor all

over the Pakistan. Currently organization has full developed forward supply chain (Forward

Logistics) but facing problem in the domain of RSCM. In past years the return rate was X

(Average) of total sale, which include both the disposal and destruction. Company is

expecting X% increase in year 2014. Company is currently operating from it National

warehouse Lahore by feeding the demand of the entire X Product distributor (PD) in

Pakistan. Management is in process to open the facilities / facility in one of the key location

considers the cost factor in mind to entertain the Return Processing center. Nature of return

includes two kind of products syrups (destructions) and disposal (Bluster Packs). Any facility

open in any point should not cost more than X Pak Rupee. In addition the management has

option to hire a third party (outsource) the RSCM process either from warehouse or from

each collection centers. Considering all the requirements we have used MI linear

programming to formulate a model.

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 Reverse Logistics in Pharmaceutical Industry

Overview of Operational Frame work of RSCM

S1
PD2

S2
PD3

FOCAL FIRM
WAREHOUSE
Manufacture

S3
RL PD4

S4 FL

PD5

Dispose Destructio
n

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 Reverse Logistics in Pharmaceutical Industry

Assumption

 Transportation rates are already known

 Return only include Damage / Expire

 Warehouse in centrally located

 Damage / Return Rate is know

 Disposal and Destruction charges are known

 Land cleaning rates are known

 Cost of subcontracting is known

Model

Indices:

D= Set of the all the distributors (d= 1, 2, ---, 24)

J= Set of the all the products (j= 1, - - - , n)

M= number of the collection center (m = 1, - - -, n)

P= number of Periods (P = 1, - - - - , n)

X1 = amount of the product which is destructed in collection center

X2= amount of the product which is disposed in collection center

Q = warehouse Facility for return products

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 Reverse Logistics in Pharmaceutical Industry

Variables:

Qjdp = amount of return products (j) which is shipped from Distributor (d) at

warehouse point in Period (P)

Wjmdp = amount of return products ( j ) which are shipped form Distributor ( d ) at

collection center in period (p)

Rx1jpm = amount of the returns products (j) mover from Collection center (m) to

destruction center (x1) in period (p)

Rx2jpm = amount of the returns products (j) mover from Collection center (m) to

disposal center (x2) in period (p)

Mx1jpq = amount of the returns products (j) mover from warehouse (Q) to

destruction center (x1) in period (p)

Mx2jpq = amount of the returns products (j) mover from warehouse (Q) to disposal

center (x2) in Period (P)

Hmp = if collection center (m) open in period) than 1, otherwise; 0

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 Reverse Logistics in Pharmaceutical Industry

Other parameters

Gqp = Capacity of the warehouse (Q) in Period (P)

Emp= Capacity of the collection center (m) in period (p)

Fmx1p= capacity of the destruction point (x1) at collection center (m) in period (p)

Fmx2p= capacity of the disposal point (x2) at collection center (m) in period (p)

Yqx1p= capacity of the destruction point (x1) at warehouse (q) in period (p)

Yqx2p= capacity of the disposal point (x2) at warehouse (q) in period (p)

kmdp= Distance of collection center (m) form distribution (d) in period (p) (Distance in

Km)

K qdp= Distance of warehouse (q) form distribution (d) in period (p) (Distance in Km)

Cmp= cost of opening of collection center (m) in period (p) (pak/collection center)

T = unit cost of the shipping a product at warehouse from distribution (Pak/ton)

T1= unit cost of the shipping a product at from collection point from distribution

(Pak/ton)

CXimp= cost of destruction (x2) at collection center (m) in period (p)

Cx2mp= cost of disposal (x2) at collection center (m) in period (p)

ZXiqp= cost of destruction (x2) at warehouse (q) in period (p)

Zx2qp= cost of disposal (x2) at warehouse (q) in period (p)

LC = cost of land cleaning from warehouse (q) in period (p)

LC1= cost of cleaning from collection points (m) in period (p) (LC= 1, 2, ---, n)

SC = cost of subcontracting (sc) the process at warehouse Point (q) in period (p)

SC1 = cost of subcontracting (sc) the process at collection centers (m) in period (p)

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 Reverse Logistics in Pharmaceutical Industry

Objective function

To minimize

n n n n n
dp pd mdp mp
P m p

n n n n n n
R pm C mp R pm C mp
m p m p

n n n n n n
M p p M p p
m p m p

n n n n n
mp Cmp mdp LC mp
p m m p

n n n n n
dp LCpd mdp SC mp
P m p

n n
dp SCpd
P

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 Reverse Logistics in Pharmaceutical Industry

With Subjected To
n
1. dp p p,d,c

2. mdp mp

3. w mpd- R pm R pm p,m,

4. R pm mp

5. R pm mp

6.

7. T > t1

8. pd - M p M p p,m,

9. M p p

10. M p p

11. LC < LC1

12. Hmp = { 0 ,1}

13. Gqp , Emp , Fmx1p , Fmx2 , Yqx1p , Yqx2 p

14. Kmdp , K qdp , Cmp

15. T , T1 ‘ CXimp , ZXiqp , Cx2mp , Zx2qp

Objective function has multiple components, which include the cost of

shipping form distributors at warehouse facility, cost of return received in collection

centers, cost of distraction in collection house, , cost of destruction at warehouse

facility , cost of disposal at warehouse facility , cost of disposal in collection house

and cost of opening a new collection center a, cost of land cleaning at collection

centers and warehouse facilities, subcontracting cost in case of warehouse facility or

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 Reverse Logistics in Pharmaceutical Industry

subcontracting cost for collection centers and finally cost of opening a collection

centers in given periods and planning horizon. Constrains (1, 2) include reverse

returns received from distributors and capacity of the collection centers. Constrain (3)

set the limit that the total inventory which is returned from the distributor should be

zero when allocated to the destruction and disposal units within the collection center,

constrain (4, 5) describes the capacity of the destruction and disposal points at

collection centers. Rests of the constraints is the facility opening constrains. Constrain

(7) states that the cost of transportation from distribution point to warehouse return

facility will be more than the cost of transportation from distribution to collection

points. Constrain (8 – 10) discuss the facility capacity and return stock allocation.

Constrain (11) states that the Land cleaning cost at warehouse return facility will be

lesser then the cost of land cleaning at collection points. Rests of the constrains is the

non- negative constrains.

Conclusion:

In this paper, the return part in the Pharmaceutical industry has been modeled

using the multiple integer linear programming. Paper investigate the reverse logistics

when company have multiple product line and having the wide operations overall in

the Pakistan , and planning to open collection centers to optimize the customer

service level by consider the best cost. The model has ability to consider if in long

term the company is planning to open the facility or outsource network then the

model will help to make decision. In future if the organization taking the uncertainty

in demand and return rate then fuzzy can be incorporated in the model which may be

tool to cope such issues.

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 Reverse Logistics in Pharmaceutical Industry

Reference

CSCMP’s Definition of Logistics Management, (2013). Retrieved from

http://cscmp.org/about-us/supply-chain-management-definitions.

Jayaraman, V., Guide Jr, V.D.R., and Srivastava, R. (1999). A closed-loop logistics

model for remanufacturing. The Operational Research Society, 50(5), 497–

508.

Khan, A., & Subzwari, M. (2009). Reverse Logistics in Pakistan’s Pharmaceutical

Sector. South Asian Journal of Management Sciences, 3(1), 27-36.

Pakistan Association of Pharmaceutical Industry (n.d). Retrieved from

http://ppma.org.pk/PPMAIndustry.aspx.

Pervez, A. (2008). Pakistan Pharmaceutical Sector, OSEC Business Network

Switzerland.

Chopra, S. (2009). Supply Chain Management: What is Supply Chain Management?

Roghanian, E &Hosseinzadeh, M. (2012). An Optimization Model for Reverse

Logistics Network under Stochastic Environment Using Genetic Algorithm.

International Journal of Business and Social Science, 3(12)

Umer, M., & Afzal, F. (2012) Analysis of Reverse Logistics in Soft-Drink Bottling

Industry of Pakistan. Proceedings of 2nd International Conference on

Business Management. Lambert academic publishing.

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 Reverse Logistics in Pharmaceutical Industry

Yousuf, I. Reverse logistics framework. Proceedings of 2nd International Conference

on Business Management.

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